Reliant Energy agreed to pay Sithe Energies $2.1 billion in cashfor 21 power plants in Pennsylvania, New Jersey and Maryland (PJM)with 4,276 MW of net generating capacity.

The deal advances Houston-based Reliant’s strategy of owninggeneration in key U.S. regions where it can leverage its tradingand marketing. With the Sithe PJM assets, Reliant will have totalnet domestic generating capacity of more than 23,000 MW operatingin seven states.

The deal is expected to be immediately accretive to earnings andcompleted by the end of the second quarter.

“In less than three years, we have evolved from a local electricutility operating primarily in Texas into a major internationalskills-based energy services company with superior capabilities ingeneration, trading and marketing,” said Reliant CEO SteveLetbetter. “The PJM assets fit extremely well with our strategy ofcreating a wholesale merchant position in key regions of thecountry and [are] a key component in allowing us to increase ourearnings growth expectation to 10-12% annually.”

Of the 21 plants Reliant will acquire, 16 are in Pennsylvania,four are in New Jersey and one is in Maryland. The plants use: coal(50%), oil/gas (46%) and hydro (4%) and represent a combination ofbaseload, peaking and intermediate generation. Reliant will manageand operate all 7,132 gross MW generated. The agreement alsoincludes purchase of 18 development sites adjacent to or nearcurrent generating facilities. A spokeswoman said there were not alot of near-term changes expected in the operation of the plants.

“The PJM market, with an attractive supply/demand outlook and amarket environment conducive to generators and marketers, is ahigh-priority commercial region for Reliant,” said Joe Bob Perkins,Reliant Energy Wholesale Group COO. “This acquisition is a keyaddition to our strategic portfolio of assets and market positions.

“We are confident that we can leverage our commercial skills tosuccessfully compete and achieve our profitability objectives basedon our experience in other deregulated markets, where earnings fromour wholesale marketing operations have grown 40%/year in each ofthe past two years. Since our acquisition of NorAm Energy in thesummer of 1997, we have grown our unregulated power generationbusiness from zero to over 9,000 MW across seven states. Combinedwith that position we are also one of only five companies to be inthe top-10 for both gas and power trading volumes.”

In October, New York-based Sithe said it hired Goldman, Sachs &Co. to advise it in a sale of the company. The move followed theannouncement that Sithe 60% owner Vivendi of France wanted toreallocate investments into other core operations (see Daily GPI, Oct. 22). The move to sell the companysurprised some observers because Sithe had been building a massiveU.S. generation portfolio over the last few years.

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